Bottom line: salaries to inch higher

Slight pickup in pay hikes, plus more workers to get them

SAN FRANCISCO (MarketWatch) -- More U.S. workers will have a bit more money in their paychecks soon, according to the latest survey of employers' pay raise intentions by WorldatWork, a nonprofit human-resources trade group.

Employers said they will give raises to 92% of their workers this year, up from 87% last year, according to the survey in April of about 2,400 firms employing about 13.9 million workers. Still, that's off from the 94% of workers granted raises in 2001.

The companies said they'll dole out raises averaging 3.7% of salary this year, a slight increase from 3.6% last year. They expect the average to inch up to 3.8% next year.

But since those pay hikes just barely clear inflation, which averaged 3.3% in 2004, it's no time to party in the streets.

"Don't go out and buy a yacht," said Amy Jantz, a compensation specialist at WorldatWork who was directly involved in the study.

Still, she noted, there have been worse times in terms of pay hikes: "In the mid-'70s and early '80s, inflation was so high we couldn't keep up in some organizations."

In 1981, when inflation was running about 10.3%, salary raises averaged 10.6%. And in the early 1990s, pay hikes averaged about 5.6% percent while inflation ran at about 5.4%, according to WorldatWork.

Cause for optimism

Moreover, Jantz noted, there's reason to be optimistic about prospects for raises.

For the first time since 2001, the projections that employers made last year for salary hikes this year matched their actual payouts.

In previous years, companies' projections often proved too optimistic, and actual payouts ended up being lower than estimated, likely because slight upticks in the economy weren't sustained.

These days, "organizations are feeling much stronger financially. What they're projecting and what they're able to pay out is starting to align again," Jantz said.

"Until 2001, those projections were running fairly close to each other and then the wheels kind of came off," she said.

"There was probably optimism on the part of a lot of organizations that their projected budget numbers for their businesses were going to rebound. There's been a lot of stops and starts in the economy," she added.

"These numbers this year make me real optimistic for the future. I've been looking at these numbers for the last seven years and this is the first year that kind of makes me go, 'Woo-hoo,' " Jantz said.

Fewer wage freezes

Another positive sign: Fewer companies said they're freezing wages. Last year, 2.6% of the firms said they'd provide no increase at all for hourly workers, Jantz said, adding that's dropped to 1.4% this year.

Still, despite the good news, we're still far from where we were in headier days. In the late 1990s, hourly and non-exempt workers could reasonably expect a 4% salary hike.

"We're still short of what we were in 1998 and 1999," Jantz said.

But the decline in salary hikes since then has been somewhat offset by a bigger portion of workers becoming eligible for bonuses and other forms of "variable" pay, distinct from a straight salary.

"The percentage of folks who are eligible for that piece of the pie has gone up" compared to the late 1990s, she said.

This year, 76% of firms said they offered variable pay -- generally a lump sum offered to top performers -- compared with 68% in 2002.

But at the same time, bonuses seem to be flattening out when compared to 2004.

Variable-pay programs will pay out an amount equal to about 5.3% of salary to hourly workers this year, on average, vs. the 5.4% average bonus paid last year.

Likewise, nonexempt salaried workers will receive bonuses equal to about 5.7% of salary, on average, down from 6.1% last year.

Exempt salaried workers should expect bonuses equal to about 11.8% of salary, on average, down from 12.1% last year, and executives are likely to get 33.9%, down from 36.1% last year.

Executives, clearly, receive bonuses that represent a far bigger portion of their salary pie. Also, more executives receive bonuses on average: The companies surveyed said 90% of executives received variable pay last year, compared with 77% of exempt salaried workers, 81% of nonexempt salaried workers, and 79% of hourly workers.

Slight decline in options

Also on the compensation front, publicly traded companies reduced the stock options they granted to workers -- as was widely expected once companies were required to record the perk as an expense -- though the drop was less than WorldatWork expected.

"It has fallen off, but not as much as we would have anticipated based on the amount of discussion that there was regarding expensing in the first place," Jantz said.

Specifically, 77% of the publicly traded firms surveyed offered stock options to executives this year, down from 82% last year, while 53% offered options to exempt salaried workers, down from 61% last year.

Further down the employment chain, 11% offered options to nonexempt hourly workers, off from 13% in 2004, while 10% offered options to nonexempt salaried workers, off from 12%.

However, executives are now more likely to get restricted stock: 55% of companies offered restricted stock to executives this year, up from 46% a year ago, and 26% of companies offered restricted stock to exempt salaried workers, up from 18% in 2004.

Lower-level workers were much less likely to get restricted stock in exchange for a cutback in stock-option grants: 1% of companies offered restricted stock to hourly workers, the same percentage as did so a year earlier, and 2% offered restricted stock to nonexempt salaried workers, the same as did in 2004.

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